Basis Moves Sharply Higher Thanks To the "Three D's"
Slow harvest pace and farmer holding boosts basis.
Bryce Knorr
Published: Oct 24, 2008
While futures prices followed Wall Street lower this week, at last one market was heating up: basis. Cash prices moved sharply higher compared to futures, as buyers scrambled to find grain thanks to the three "D" — harvest delays, better demand and farmer determination not to sell at lower levels. However, not all three factors affected corn, soybean and wheat equally.
Corn basis rose sharply at some locations, for example, but the boost seemed to be more based on the slow harvest pace and tight farmer holding, rather than on strong demand. Indeed, basis actually was slightly weaker at the Gulf this week. Barge freight levels eased early in the week but firmed on Friday, perhaps because elevators decided to trim some of their inventory by moving grain down river. Still, freight was around a dime a bushel cheaper this week, with some of those savings passed onto farmers to lure grain into the marketing channel.
The basis push lowered incentives to store grain by reducing carry between December and deferred contracts. Dec/July traded 37 or less, and firmed even as futures prices eased. That still provided incentives for farmers to store on farm, however. Most producers have cash flow from forward contracts, and are anticipating a nice crop insurance check, too. To read Bryce Knorr's complete weekly basis review, click HERE.
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Tagged: Harvest, farm, wheat, soybean, farmfutures
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